News analysis: Salaries start to defrost

The pay freezes of the past couple of years are beginning to thaw, but any increases this year are unlikely to excite most employees, says Ben Jones

Pay freezes in both the public and private sectors have become commonplace over the past couple of years as employers have implemented measures to cope with the recession.

But there are signs that the big pay freeze is beginning to thaw. The Employee Benefits/Alexander Forbes Benefits Research 2010 found that while 49% of employers froze pay last year, 34% plan to end freezes in the year ahead. While the Badenoch and Clark Employment Study, published in March, showed 24% of employers that implemented pay freezes during the recession have now lifted them.

But Chris Hickey, managing director of permanent recruitment at recruiter Robert Walters, said it would be hard to predict whether the lifting of pay freezes was more a blip than a consistent trend. “The pay rises have been very much led by the financial services sector. Freezes that were put in place 12-18 months ago are now being lifted. We are starting to see the effects of that now in other areas, such as retail and media. However, whether this is a bit of a spike or something that can be sustained remains to be seen.”

Uncertainty over the country’s political future ahead of the 6 May general election is also prompting some employers to hold fire on pay rises. In fact, some may have no choice in the matter: one of Labour’s election pledges is to cap public sector basic pay uplifts at 1% for two years from 2011.

Steve Watson, managing director of reward consultancy Rewardworks, acknowledged some pay freezes were being lifted, but he said increases were not on the scale many had been hoping for. “The ones that are doing it now are doing what I would call pay ‘creeps’ and they are happening because everybody else is doing it.”

Create adverse publicity

Watson added that small pay increases could actually create adverse publicity. “Trade unions, for example, could say: ‘Our members cannot live with this pay increase – it is derisory’,” he said.

Unions are also warning it could take time for pay rises to catch up with inflation. Paul Sellers, pay officer at the Trades Union Congress (TUC), said: “For most of the last century and this one, pay has risen consistently above inflation and we need to get back to that. However, I do not really see pay overtaking inflation for the coming year but, hopefully, normal service will be resumed the year after that.”

So although small pay rises have been implemented in some organisations, it is not the significant leap employees would want. Watson said: “I would liken it to a car when you top up the oil and put air in the tyres. It is the kind of stuff you have to do, but do not really want to talk about. It is unlikely that pay rises will go above inflation.”

But increasing salary is not the only way to boost employee pay packets. Charles Cotton, reward and performance director at the Chartered Institute of Personnel and Development, said there were other options for employers unable to lift a pay freeze just yet. “Some organisations may decide to pay a bonus rather than increase pay. An award will have a long-term effect on the pay bill, whereas a bonus can be a one-off payment.”

Cotton said the prospect of a double-dip recession could also be a factor in decisions about whether to reinstate pay rises. “As far as pay goes, it depends how much money businesses have got. It may be some decided three or four months ago that they were going to increase pay because revenues had improved. But we may see a whole new load of organisations making pay freezes.”

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